RE SMART LAND INVESTMENT LTD

HCCW 96/2016

[2018] HKCFI 901

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING‑UP) PROCEEDINGS NO 96 OF 2016

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D E C I S I O N   O N   C O S T S

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1.  Mr Yuen Kai Lun (“Yuen”), a contributory of Smart Land Investment Limited (“the Company”), applied by summons dated 3 June 2016 to strike out the petition presented on 6 April 2016 for the winding‑up of the Company based on an underlying debt of HK$2.37 million.

2.  The strike‑out summons was originally scheduled to be heard on 21 March 2017.  On 16 March 2017, this court approved a consent summons whereby the strike‑out summons was withdrawn by Yuen.  The question of the costs of the strike-out summons was left outstanding which I now determine on the basis of the parties’ respective written submissions.

3.  The Petitioner and Yuen had been business partners in the trading and manufacture of plastic and metal products since 2001 through a Hong Kong company called Grandview in which the Petitioner and Yuen were equal shareholders.  Yuen alleged that there was a “Master Agreement” that the business would be co-owned in equal shares and that the two of them would have an equal say in its management.

4.  As their business grew they also invested in stocks and properties.  In 2005 or 2006 the Company, in which the Petitioner and Yuen again held equal shares, acquired a flat in Monte Vista, Ma On Shan.  The flat had since been used by Yuen and his family for their accommodation.  It was subject to a mortgage facility with Shanghai Commercial Bank, with the Petitioner and Yuen as guarantors of the Company.  The monthly mortgage repayments that the Company was liable to make to the bank used to be funded by Grandview, by way of rent under tenancy agreements it had signed with the Company.  For their part, the Petitioner and his family have been living in a different flat held in the name of Grandview.

5.  In around 2015 the relationship between the Petitioner and Yuen broke down, and the Company and the other companies held by them went into a state of deadlock.  By December 2015, the company had gone into default on the monthly mortgage repayments, as a result of which the bank commenced a mortgage action against the Company and another action against the Petitioner and Yuen as guarantors. 

6.  In February 2016, the Petitioner as guarantor settled the liability of the Company to the bank in a total sum of HK$2.37 million together with costs.  In April 2016, he presented a petition to wind up the Company on the basis of the subrogated debt.  The strike-out summons was taken out on 3 June 2016, affirmations were filed by the parties and the summons was withdrawn at the eleventh hour, before the scheduled hearing on 21 March 2017. Yuen contends that there should be no order as to the costs of the strike-out summons, whereas the Petitioner contends that Yuen should pay his costs.

7.  There is no real dispute between the parties on the legal principles applicable in a situation such as the present for deciding the incidence of costs.  The court has a very broad discretion in the matter of costs.  The general rule or starting point is that an applicant who has given up his application by withdrawing it has to pay the costs of the respondent unless there is a good reason for a different order to be made.  There is no general convention or practice of making no order as to costs merely because the matter has been settled (save as to costs) or has become academic.  See eg Re China Solar Energy Holdings Ltd (unrep, HCCW 108/2015, 1 March 2016); Re Fook Lam Moon Restaurant Ltd (unrep, HCMP 438/2010, 8 December 2015), §§35-52.

8.  This is a case in which the court has in my view to take a fairly broad brush approach.  It is not appropriate for the court to try the matter on affidavit and come to any finding in relation to the disputed facts.  This is pertinent in particular to the question of how the deadlock arose leading to the absence of cheques signed to allow the transfer of funds from Grandview to the Company to pay the mortgage instalments.  Yuen argued that it was incredible that he would refuse to sign cheques to fund the mortgage repayments for the flat in which he was living.  But Grandview apparently had various payments to make and I do not see that the Petitioner must necessarily procure cheques for the mortgage repayments to be paid if there were disagreements about other items.  At any rate I do not consider the position to be so clear that the court could determine the facts and merits in the underlying dispute on the affirmation evidence alone.

9.  The strike‑out summons was issued on the ground that the winding-up petition was presented for a collateral purpose and was therefore an abuse of process.  It was said that the Petitioner was motivated to antagonise Yuen by attempting to evict him from his residence, and ultimately to “reshuffle” their respective rights under the Master Agreement.  But given that the Petitioner did in fact pay off the bank when Yuen could have but did not do so, it is not easy to see how it could be disputed that the Petitioner was subrogated into the bank’s position as creditor, and not easy to see why he could not thereupon seek a winding‑up on the simple ground of inability to pay debts.  The Petitioner was an undisputed creditor of the Company.  The Company held the flat which was a valuable asset and could be realised for repaying the debt.  The Petitioner therefore stood to obtain real benefit from a winding up of the Company; with any surplus to be shared between the two sides equally.  I fail to see how enforcing the debt, as the Petitioner as creditor was entitled to do, could somehow be seen as trying to “rewrite” the Master Agreement.

10.  By the time of the petition, it is plain that there was no love lost between the Petitioner and Yuen.  Antagonism is however not a ground for refusing a creditor the relief of winding up.  As Ungoed-Thomas J said in Mann v Goldstein [1968] 1 WLR 1091 at 1095F-G (applied in Re Jazz Photo (Hong Kong) Ltd [2005] 1 HKLRD 530 at §22 and Re MP Engineering Co Ltd (unrep, HCCW 712/2009, 20 July 2011) at §17):

“… It seems to me that to pursue a substantial claim in accordance with the procedure provided and in the normal manner, even though with personal hostility or even venom, and for some ulterior motive, such as the hope of compromise or some indirect advantage, is not an abuse of the process of the court or acting mala fide but acting bona fide in accordance with the process …”

11.  It was further submitted on behalf of Yuen that there was a change in circumstances in that in January 2017 the Petitioner presented another petition to wind up Grandview on the just and equitable ground.  I do not however think that this development radically changed the merits of the strike‑out application.  It might be that Yuen felt that if Grandview was also to be wound up, so that the Petitioner would likewise lose the benefit of his “director’s quarters”, then the two sides would be placed on an equal footing and on that basis he (Yuen) would not seek to strike out the petition to wind up the company anymore.  But as stated in Brookes v HSBC Bank plc [2011] EWCA Civ 354 at §6(4) (cited in Re China Solar Energy Holdings Ltd, supra), the mere fact that a claimant’s decision to discontinue may have been motivated by practical, pragmatic or financial reasons as opposed to a lack of confidence in the merits of the case would not suffice to displace the presumption that the defendant should recover his costs.  

12.  Moreover, in what appears to have been a quasi-partnership, the complete breakdown of relationship and the consequent deadlock between the Petitioner and Yuen, who were equal partners, seem to me to suggest that a winding-up petition in respect of Grandview was not surprising and was perhaps foreseeable if not even inevitable.  Nor can I conclude that the change in circumstances was brought about by some unreasonable conduct on the part of the Petitioner: see Brookes, supra, at §6(6).  In any event, Yuen did not insist that Grandview be wound up as a condition for withdrawing his strike-out summons against the petition for winding up the Company.

13.  Furthermore, although the petition to wind up Grandview was issued on 27 January 2017, the summons to withdraw the strike-out summons was not issued until 15 March 2017, a mere 6 days before the hearing. In fact, the Petitioner’s affirmation of 1 August 2016 already stated that because of the deadlock, Grandview might go into default and he anticipated that an application to wind it up was imminent.

14.  In these circumstances I do not think the strike‑out summons was rendered academic by subsequent developments.  I was not impressed by its merits to start with, and it seems to me it was simply withdrawn by Yuen for his own strategic or other reasons.  For these reasons the costs must be paid by Yuen to the Petitioner, including the costs of the argument on costs.